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As  the  matter  of  the  within 
report  is  of  great  concern  to 
the  holders  of  Participation 
Certificates,  it  is  recommend - 
,ed  that  it  be  read  carefully  by 
each  certificate  holder. 


CHICAGO  RAILWAYS  COMPANY 


REPORT  OF  HENRY  A.  BLAIR,  CHAIRMAN, 

TO  THE  BOARD  OF  DIRECTORS, 

DATED  APRIL  23,  1913 


NOTE :  By  resolution  of  the  Board  of  Directors 
of  Chicago  Railways  Company,  adopted 
April  23, 1913,  the  within  report  was  re- 
ceived and  a  copy  thereof  was  directed 
to  be  mailed  to  each  holder  of  participa- 
tion certificates,  together  with  a  copy  of 
the  fifth  annual  report  of  the  company. 


Lift 
UNIV 

CHICAGO,  ILL.,  April  23,  1913. 

To  the  Board  of  Directors 

of  the  Chicago  Railways  Company. 

GENTLEMEN  : 

In  connection  with  the  Fifth  Annual  Report  of  the 
Chicago  Railways  Company,  covering  the  fiscal  year  com- 
mencing February  1,  1912,  and  terminating  January  31, 
1913,  copies  of  which  have  been  printed  and  are  now 
ready  for  distribution,  I  desire,  as.  Chairman  of  your 
Board,  to  submit  the  following: 

As  indicated  by  its  title,  this  report  covers  the  fifth 
fTyear  of  the  operation  of  your  company,  and  the  results 
that  operation  for  the  past  fiscal  year  as  compared 
with  those  of  previous  years  are  most  gratifying  as  they 
a  large  increase  in  gross  receipts,  a  substantial  re- 
duction in  expenses  and  a  very  large  increase  in  actual 

income. 

This  report,  however,  as  well  as  the  reports  for  previ- 
ous years,  will  be  more  fully  comprehended  when  studied 
connection  with  a  statement  as  to  the  obligations  of 
"your  company  under  its  ordinance  from  the  City  of 
o. 


>Qhicag 


^ORDINANCE  REQUIREMENTS  AFFECTING  THE  FINANCIAL  OBLIGA-i 
TIONS   OF  THE   COMPANY: 

Under  Section  16  of  the  ordinance  of  February  11, 
1907,  your  company  is  obligated  in  each  year  to  expend 
for  maintenance  and  repairs  at  least  a  sum  equal  to  six 
per  cent,  of  the  gross  receipts  for  that  year,  and  if  the 
said  amount  is  not  so  expended  for  the  said  purpose  by 


the  company  during  any  one  year,  then  at  the  end  of 
such  year  the  unexpended  portion  thereof  must  be  de- 
posited in  a  fund,  with  one  or  more  of  the  banks  or  trust 
companies  authorized  under  the  ordinance  to  act  as  de- 
positaries of  such  funds,  for  the  purpose  of  being  used 
whenever  necessary  for  such  maintenance  and  repairs. 

By  the  terms  of  the  same  Section  16  the  company  is 
further  obligated  on  or  before  the  fifth  day  of  each 
month  of  each  year  to  deposit  with  one  or  more  of  the 
said  depositaries  in  a  separate  fund,  a  sum  equal  to  eight 
per  cent,  of  the  gross  receipts  of  the  preceding  month  to 
provide  a  reserve  fund  for  taking  care  of  renewals  and 
depreciation  of  the  street  railways  and  other  property 
of  the  company.  Out  of  this  renewal  reserve  fund  the 
Board  of  Supervising  Engineers,  provided  for  by  the  or- 
dinance, is  from  time  to  time  to  authorize  the  repayment 
to  the  company  of  such  amounts  as  it  shall  have  paid  out 
for  renewals  of  said  street  railway  and  other  property, 
and  the  portion  of  said  fund  remaining  unexpended  is  to 
continue  in  said  fund  as  a  provision  for  future  renewals-. 

Under  Section  18  of  the  same  ordinance  the  company 
is  obligated  to  pay,  as  a  part  of  its  operating  expenses, 
all  damages  arising  or  growing  out  of  injuries  to  persons 
or  to  the  property  of  others  incident  to  the  construction 
or  reconstruction  or  operation  of  its  street  railway  sys- 
tem, and  the  company  is  obligated  to  set  aside  as  a  sepa- 
rate fund  such  percentage  of  the  gross  receipts  of  the 
company  as  the  Board  of  Supervising  Engineers  shall 
estimate  to  be  sufficient  to  protect  the  company  against 
s-uch  claims,  to  the  end  that  if  the  City  or  its  licensee 
shall  elect  to  purchase  the  street  railway  property  of  the 
Company,  as  provided  by  the  ordinance,  there  shall  then 


be  available  to  the  Company  a  fund  sufficient  to  meet  and 
discharge  all  legitimate  claims  for  such  damages. 

By  Section  25  of  the  same  ordinance  the  Company  on 
or  before  the  10th  day  of  April  in  each  year  is  to  come 
to  an  accounting  and  settlement  with  the  City  as  of  the 
31st  day  of  January  last  preceding  on  the  following 
basis : 

From  the  gross  receipts  of  the  said  street  railway  sys- 
tem and  property  of  the  Company  from  all  sources  and  of 
every  kind,  for  the  year  ending  on  the  said  31st  day  of 
January,  there  shall  be  deducted  for  said  year : 

First,  (a)  all  expenses  of  operation,  including  main- 
tenance, repairs  and  renewals;  (b)  all  amounts  contrib- 
uted during  said  year  and  then  held  in  reserve  under  the 
provisions  of  Sections  16  and  18  of  said  ordinance,  here- 
tofore mentioned;  (c)  all  amounts  paid  out  for  taxes,  and 
assessments  levied  or  imposed  upon  the  real  and  personal 
property  of  the  Company,  including  all  capital  stock  or 
franchise  taxes ;  (d)  all  salaries  or  expenses  of  the  Board 
of  Supervising  Engineers  authorized  by  the  terms  of  the 
ordinance,  and 

Second,  a  sum  equivalent  to  five  per  centum  per  an- 
num for  said  year  upon  the  amount  of  the  cash  purchase 
price  which  the  City  would  then  be  obligated  to  pay  in 
case  it  should  purchase  the  property  pursuant  to  the 
provisions  of  said  ordinance  if  purchasing  the  same  for 
municipal  operation. 

The  amount  payable  by  the  City  in  case  of  purchase 
is  determined  by  Section  20  of  said  ordinance  and  by 
virtue  of  this  section  the  City  of  Chicago  has.  the  right 
upon  the  first  day  of  February  or  upon  the  first  day  of 
August  in  each  and  every  year,  upon  giving  at  least  six 
months '  previous  notice  in  writing  of  its  intention  so 


to  do,  to  purchase  and  take  over  (but  only  for  municipal 
operation  in  case  of  purchase  prior  to  February  1,  A.  D. 
1927)  the  entire  street  railway  system  of  the  company 
within  the  City,  and  in  case  of  said  purchase  the  City  is 
obligated  to  pay  for  the  same  the  aggregate  of  the  fol- 
lowing items : 

1.  The  value  of  the  property  originally  taken  over  by 
the  Chicago  Eailways  Company  as  the  same  existed  on 
June  30,  1906,  which  valuation  was  determined  to  be 
the  sum  of  $29,000.000. 

2.  The  value  of  any  and  all  property  and  equipment 
and  additions  thereto  supplied,  purchased  or  acquired 
by  the  Receivers  of  the  Chicago  Union  Traction  Com- 
pany as  a  part  of  the  said  street  railway  system,  in- 
cluding tunnel  reconstruction,  between  the  30th  day  of 
June,  A.  D.  1906,  and  February  1,  A.  D.  1907,  as  deter- 
mined by  the  Board  of  Supervising  Engineers,  which 
value  has  been  determined  by  said  Board  to  be  the  sum 
of  $1,779,874.94. 

3.  The  cost  of  reconstruction  and  re-equipment  of  the 
street  railway  lines  of  the  Company  and  of  the  construc- 
tion of  new  lines  and  extensions,  underground  trolleys, 
tunnel  reconstruction,  and  other  additions  to  property, 
actually  paid  by  said  Company  at  and  prior  to  said  pur- 
chase by  said  City  and  certified  by  the  Board  of  Super- 
vising Engineers,  or  incurred  for  work  actually  done  or 
materials  furnished  with  the  approval  of  said  Board  nn- 
der  completed  or  pending  contracts,  together  with  the 
percentages  thereon  as  in  Section  7  of  the  ordinance  pro- 
vided, and  all  amounts  which  shall  then  have  been  con- 
tributed by  the  Company  to  the  City  for  the  construction 
of  subways  or  extensions  thereof. 

The  cost  of  construction,  reconstruction,  re-equipment, 


extensions  and  additions  to  plant  and  property  men- 
tioned in  this  paragraph,  with  percentages  added,  as  de- 
termined and  certified  by  the  Board  of  Supervising  En- 
gineers, was  on  Jannary  31  last,  $46,708,585.74,  so  that  if 
the  City  had  given  notice  according  to  the  ordinance  and 
had  made  the  purchase  of  the  property  of  the  Company 
on  Jannary  31,  1913,  it  would  have  been  obligated  to  pay 
therefor  the  aggregate  of  the  following  four  items : 

(a)  The  value  of  the  property  fixed  by  the  ordi- 
nance as  originally  taken  over  by  the  company 

as  of  the  date  of  June  30,  1906 $29,000,000.00 

(b)  The  value  of  additions  to  property   between 
June  30,  1906,  and  February  1,  1907,  as  deter- 
mined by  the  Board  of  Supervising  Engineers..      1,779,874.94 

(c)  The  cost  of  construction  and  reconstruction, 
with  percentages  added,   as  determined  by  the 
Board  of   Supervising   Engineers   between   Feb- 
ruary 1,  1907,  and  February  1,  1908 1,809,172.08 

(d)  The     cost     of     construction,     reconstruction, 
equipment,  extensions  and  additions  to  plant  and 
property,  with  percentages  added,  as  determined 
by  the  Board  of  Supervising  Engineers,  between 

February  1,  1908,  and  January  1,  1913 44,899,413.66 


$77,488,460.68 

After  the  deduction  from  the  gross  receipts  of  the 
items  authorized  by  Section  25  of  the  ordinance  herein- 
before mentioned,  the  ordinance  provides  that  the  amount 
remaining  shall  be  considered  as  the  net  receipts  for 
such  year  arising  from  the  operation  of  the  street  rail- 
way system  of  the  Company  and  shall  be  divided  between 
the  Company  and  the  City  in  the  proportion  of  55%  to 
the  City  and  45%  to  the  Company. 

It  will  thus  be  observed  that  the  only  money  available 
to  the  Company  (after  payment  of  operating  expenses, 
amounts  contributed  to  the  reserve  funds  provided  for  in 
Sections  16  and  18  of  the  ordinance,  and  taxes)  for  the 
payment  of  its  interest  and  other  obligations  and  as 
dividends  upon  its  capital  stock,  is  (1)  five  per  cent,  upon 
the  valuation  at  which  the  City  is  authorized  to  pur- 


chase  the  street  railway  property,  and  (2)  its  45%  of 
the  divisible  net  receipts  ascertained  as  above  stated. 

The  rights  of  the  Company  as  to  percentages  on  ac- 
count of  its  construction,  reconstruction,  re-equipment, 
extensions  and  additions  to  its  plant  and  property,  are 
set  forth  in  Section  7  of  the  same  ordinance.  By  this 
section  it  is  provided  that  the  Company  shall  purchase 
materials  and  equipment,  employ  engineers,  superintend* 
ents,  clerks,  foremen  and  workmen  and  shall  pay  all  ex- 
penses of  every  nature,  including  legal  expenses,  neces- 
sary to  the  proper  completion  and  prompt  performance 
of  the  work  of  construction,  reconstruction,  re-equipment, 
extensions  and  additions  to  plant  and  property  provided 
for  or  required  by  the  ordinance  or  the  exhibits  thereto, 
upon  the  lowest  advantageous  terms  and  subject  to  the 
approval  of  the  said  Board  of  Supervising  Engineers; 
and  that  to  the  actual  amount  paid  by  the  Company  in 
and  about  carrying  out  each  and  all  of  the  requirements 
of  this  Section  7  shall  be  added  ten  per  cent,  of  such 
amount  as  a  fair  and  proper  allowance  to  the  Company 
for  conducting  the  work  and  furnishing  the  equipment, 
and  five  per  cent,  for  its  services,  including  brokerage, 
in  procuring  funds  therefor,  except  that  no  such  percent- 
ages shall  be  allowed  on  the  cost  of  reconstructing  the 
Van  Buren  street  tunnel,  as  provided  in  the  first  para- 
graph of  'Section  34  of  the  ordinance,  or  of  lowering  and 
removing  obstructions  to  navigation  in  the  Chicago  River 
under  the  ordinance  of  the  City  of  Chicago  relating  there- 
to, passed  June  18,  A.  D.  1906. 


AMOUNT  AND  DISPOSITION  OF  PERCENTAGES  ALLOWED  TO  THE 
COMPANY  UNDER  AUTHORITY  OF  SECTION  7  OF  THE  ORDI- 
NANCE UPON  THE  COST  OF  CONSTRUCTION,  RECONSTRUCTION, 
RE-EQUIPMENT,  EXTENSIONS  AND  ADDITIONS  TO  PLANT  AND 
PROPERTY. 

Up  to  January  31,  1913,  the  Board  of  Supervising  En- 
gineers have  authorized  the  following  certificates : 

%  thereon  Total 

For  Work  done  $37,281,166.65    $5,496,734.58  $42,777,901.23 

For    Chicago    Consolidated 

Traction  property  acquired 

pursuant  to  ordinance  of 

October  10,  1910 3,930,684 . 51  3,930,684 . 51 


$41,211,851.16    $5,496,734.58  $46,708,585.74 

An  amount  of  $45,955,000  of  First  Mortgage  Bonds  has 
been  authorized  for  the  above  total.  Of  these  bonds  the 
Company  still  owns  $500,000,  held  by  the  Harris  Trust 
and  Savings  Bank,  pursuant  to  the  requirement  of  the 
bankers,  as  security  against  any  judgment  recovered  or 
which  possibly  could  be  recovered  against  the  Company 
in  the  litigations  hereinafter  mentioned.  Of  said  First 
Mortgage  Bonds  $3,900,000  thereof  were  given  in  part 
payment  for  the  Consolidated  Traction  property  inside 
the  City  limits,  and  the  remainder,  viz. :  $41,555,000,  have 
been  sold. 

These  Bonds  were  sold  as  follows: 

Cash  Discount          Total  Bonds  y 

$38,068,149 . 61        $3,468,850 . 39        $41,555,000 

The  Company's  profit  and  the  15%  allowed  on  con- 
struction expenditures-,  namely,  $5,496,734.58.  In  market- 
ing the  bonds  which  it  sold,  namely,  the  above  $41,555,000, 
it  had  to  allow  a  discount  of  $3,486,850.39.  Therefore  the 
profit  of  the  Company  to  date  has  been  $5,496,734.58  less 
$3,486,850.39,  or  $2,009,884.19.  As  a  part  of  the  last 
mentioned  amount,  the  Company  still  has  unsold  $500,000 


8 

of  bonds.  If  these  bonds  are  sold  at  par  the  final  profit 
will  be  as  above.  If  they  are  sold  at  a  discount  the 
profit  will  be  reduced  by  the  discount  on  the  $500,000. 

As  relating  to  the  profits  of  the  Company,  the  15 % 
allowed,  $5,496,734.58,  has  been  disposed  of  as  follows: 

Credited  to  Interest  and  Discount $3,676,781.94 

The  balance  has  been  used  to  write  down  the  excess 
value  of  the  property  carried  on  the  books  over  the  City 
valuation. 

In  this  connection  it  should  be  observed  that  a 
large  amount  of  expenses  was  incurred  settling  damage 
claims-  and  providing  for  other  expenses  of  the  receivers 
not  covered  by  the  plan  of  reorganization,  thus  increas- 
ing the  amount  of  the  actual  debt  of  the  Company  in  addi- 
tion to  the  large  excess  already  existing  on  account  of 
the  amount  of  the  funded  debt  as  hereafter  explained. 

EXCESS   OF  FUNDED  DEBT     OVEK    AMOUNT     OF    VALUATION     AT 
WHICH  CITY  HAS  RIGHT  TO  PUECHASE : 

In  carrying  out  the  plan  of  reorganization  of  October 
15,  1907,  it  was  necessary  to  incur  a  large  funded  debt 
represented  by  (1)  First  Mortgage  or  Rehabilitation 
Bonds  covering  the  expenditures,  with  percentages  added, 
as  determined  by  the  Board  of  Supervising  Engineers, 
from  February  1, 1907,  to  February  1, 1908,  aggregating, 
as  heretofore  set  forth,  $1,809,172.08,  and  (2)  Consoli- 
dated Mortgage  Bonds  and  collateral  notes  and  income 
obligations  representing  amounts  exchanged  for  the 
funded  and  other  indebtedness  of  predecessor  companies 
according  to  said  plan,  and  cash  requirements  necessary 
to  permit  of  the  carrying  out  of  the  plan  of  reorganiza- 
tion, aggregating  $36,390,175.30.  The  total  of  this  funded 
indebtedness  (excluding  bonds  deposited  as  collateral  to 


collateral  notes)  existing  as  of  the  date  of  February  1, 
1908,  was  as  follows : 

First  Mortgage $  1,809,172.08 

Consolidated  Mortgage : 

Series  A  9,332,800.00 

Series  B  16,910,575.00 

Series  C  3,185,446.58 

5- Year  6%  Collateral  Notes 5,976,000.00 

5- Year  5%  Collateral  Notes 500,000.00 

Collateral  and  Income  Obligations 485,353.72 


NET  FUNDED  DEBT $38,199,347.38 

The  price  at  which  the  City  could  have  purchased  on 
February  1, 1908,  was  $32,589,047.02,  made  up  as  follows: 

Value  of  the  property  fixed  by  the  ordinance 
as  originally  taken  over  by  the  Company 
as  of  the  date  of  June  30,  1906 $29,000,000.00 

The  value  of  additions  to  property  between 
June  30,  1906,  and  February  1,  1907,  as 
determined  by  the  Board  of  Supervising 
Engineers 1,779,874.94 

The  amount  allowed,  with  percentages  added, 
as  determined  by  the  Board  of  Supervising 
Engineers  as  the  cost  of  construction  and 
reconstruction  for  the  period  between  Feb- 
ruary 1,  1907,  and  February  1,  1908 .  1,809,172.08 

$32,589,047.02 

It  will  be  noted  from  the  above  that  while  the  net 
funded  debt  of  the  Company  on  February  1,  1908,  was 
$38,199,347.38,  the  price  at  which  the  City  under  the  ordi- 
nance was  entitled  to  purchase  the  property  as  of  the 
same  date  was  only  $32,589,047.02.  In  other  words,  the 
excess  of  the  net  funded  debt  over  the  amount  at  which 
the  City  was  then  entitled  to  purchase  was  the  sum  of 
$5,610,300.36. 

As  hereinafter  explained,  it  became  necessary  to  ac- 
quire the  property  of  the  Chicago  Consolidated  Traction 
Company  inside  the  city  limits  of  the  City  of  Chicago. 
This  property  was  acquired  by  the  Company  pursuant  to 
the  terms  of  an  ordinance  of  the  City  Council  of  the  City 
of  Chicago  to  your  Company,  passed  October  10, 1910.  By 
the  terms  of  that  ordinance  the  Company  was  allowed  as 


10 

a  credit  upon  its  capital  account  only  the  value  as  of  No- 
vember 1,  1909,  of  the  physical  assets  acquired,  as  deter- 
mined by  Messrs.  Bion  J.  Arnold  and  George  Weston, 
plus  the  value  as  determined  by  the  Board  of  Supervising 
Engineers  of  additions  and  improvements  made  between 
November  1,  1909,  and  December  6,  1910,  the  date  of  the 
acceptance  of  the  last  named  ordinance  by  the  Company. 
The  amount  determined  by  Messrs.  Arnold  and  Weston 
as  the  value  of  the  physical  assets  as  of  November  1, 
1909,  was  $3,930,684.51,  and  the  value  of  additions  and 
improvements  made  between  November  1,  1909,  and  De- 
cember 6, 1910,  as  determined  by  said  Board  of  Supervis- 
ing Engineers,  was  $91,297.50.  It  was  necessary  in  addi- 
tion thereto,  in  order  to  acquire  complete  title,  to  issue 
and  deliver  certain  mortgage  bonds,  to  wit : 

Consolidated  Mortgage  Series  "B"  Bonds $   270,000 

Purchase  Money  Mortgage  Bonds 4,073,000 

Adjustment  Income  Bonds 2,500,000 


$6,843,000 

This  $6,843,000  was  an  addition  to  the  excess  of  funded 
debt  over  the  price  at  which  the  City  is  entitled  to  pur- 
chase the  property  of  the  Company.  The  aggregate  of 
the  original  excess  of  $5,610,300.36,  and  the  last  men- 
tioned sum  of  $6,843,000,  together  with  other  items  here- 
in next  mentioned,  has  been  reduced  by  payments  and 
by  application  of  the  sinking  fund  provision  relating  to 
Consolidated  Mortgage  Bonds,  so  that  the  total  excess  of 
funded  debt  over  the  amount  at  which  the  City  could  have 
purchased  on  February  1,  1913,  is  $9,955,003.87. 

Under  the  original  plan  of  reorganization  sufficient 
provision  was  not  made  to  pay  all  of  the  debts  which 
were  charged  against  the  receivership  and  which,  under 
the  order  of  the  Federal  Court  in  which  the  receivers 
were  appointed,  the  Eailways  Company  was  required  to 


11 

pay.  These  items  included  personal  injury  suits  and 
claims,  materials  and  supplies  furnished,  claims  for 
labor,  moneys  due  to  employes,  etc.,  the  effect  of  which 
was  to  increase  excess  of  debts,  funded  and  floating, 
above  the  price  at  which  the  City  is  entitled  to  purchase, 
but  by  the  application  of  the  sinking  fund,  and  by  the 
application  of  the  percentages  earned  upon  construction, 
reconstruction  and  equipment  not  used  to  pay  discount 
on  bonds,  has  been  reduced  so  that  the  excess  on  Febru- 
ary 1,  1913,  was,  as  above  stated,  $9,955,003.87. 

The  sinking  fund  provision  above  referred  to  is  found 
in  the  mortgage  securing  the  Consolidated  Mortgage 
Bonds.  It  provides  for  the  application  annually  of  $250,- 
000  in  the  reduction  of  the  mortgage  debt  represented  by 
Series  "C"  bonds  and  Series  "A"  bonds  used  for  the 
purposes  required  by  the  plan  to  be  satisfied  with  Series 
"C"  bonds. 

The  price  at  which  the  City  could  purchase  on  Febru- 
ary 1,  1913,  was  $77,488,460.68,  while  the  amount  oi  net 
funded  debt  on  the  same  date  was  $87,443,464.55,  made 
up  as  follows: 

First  Mortgage  Bonds $45,455,000.00 

Consolidated  Mortgage  Bonds : 

Series  "A"  15,861,800.00 

Series  "B"   17,160,475.00 

Series  "C"   2,119,336.22 

Purchase  Money  Mortgage  Bonds 3,969,620.00 

Adjustment  Income  Mortgage  Bonds 2,379,233.33 

5-Year  Collateral  5%  Notes 498,000.00 

$87,443,464.55 

It  is  necessary  in  analyzing  the  report  in  question  to 
bear  in  mind  this  important  fact  of  the  excess  of  funded 
debt  above  the  amount  at  which  the  City  is  entitled  to 
purchase  the  property,  because,  after  payment  of  oper- 
ating expenses,  contributions  to  reserve  funds  and  taxes, 
the  only  funds  available  to  the  company  for  the  payment 


12 

of  its  interest  obligations  and  dividends  is  five  per  cent, 
upon  the  valuation  at  which  the  City  is  entitled  to  pur- 
chase and  the  company's  share  of  the  divisible  net  re- 
ceipts (45  per  cent.). 

As  shown  by  the  report  in  question,  the  total  net  in- 
come of  the  Company  for  the  last  fiscal  year,  after  de- 
ducting operating  expenses  and  taxes,  funds  contributed 
to  renewals,  and  5  per  cent,  upon  the  valuation  at  which 
the  City  is  entitled  to  purchase  the  property,  was  $2,569,- 
825.94,  but  under  the  terms  of  the  ordinance  the  City 
was  entitled  to  receive  55  per  cent,  of  this  net  income, 
or  $1,413,404.26,  while  the  Company  had  to  be  content 
with  45  per  cent,  thereof,  or  $1,156,421.68. 

As  before  stated,  the  valuation  at  which  the  City  on 
January  31  last  was  entitled  to  purchase  the  property  of 
the  Company  was  $77,488,460.68,  while  the  funded  debt  of 
the  Company  on  the  same  day  was  $87,443,464.55  (all 
bearing  interest  at  five  per  centum  per  annum,  except- 
ing only  $6,348,853.33  at  four  per  cent.),  or  an  excess  of 
$9,955,003.87  above  the  said  valuation,  and  it  will  there- 
fore be  readily  perceived  that  the  five  per  cent,  on  the 
valuation  retained  by  the  Company  is  insufficient  to  pay 
all  the  interest  on  its  funded  debt  by  the  interest  upon 
the  said  excess  of  $9,955,003.87,  to  say  nothing  of  (1) 
$250,000  necessary  every  year  to  be  applied  to  the  sinking 
fund  in  redemption  of  consolidated  mortgage  bonds,  or 
(2)  non-partnership  expenses — that  is  to  say,  expenses 
not  recognized  by  the  City  in  the  settlement  of  accounts 
with  it.  The  City  only  recognizes  expenses  incurred  in 
the  actual  operation  of  the  road  and  excludes  from  the 
account  (1)  all  moneys  paid  to  the  City  as  its  share  of 
interest  on  daily  balances;  (2)  all  moneys  paid  to  trus- 
tees in  trust  deeds  for  paying  interest  on  bonds;  (3)  fees 


13 

to  trustees  for  acting  as  such;  (4)  fees  to  trustees  for 
certifying  bonds;  (5)  fees  to  trustees  for  paying  coupons 
on  collateral  notes;  (6)  expenses  of  litigation  affecting 
the  interest  of  the  Company  in  which  the  City  is  not  in- 
terested, including  attorneys'  fees,  cost  of  records,  briefs, 
etc.;  (7)  engraving  of  bonds;  (8)  advertisements  of  any 
kind  relating  to  bonds  or  relating  to  participation  certi- 
ficates and  expenses  of  that  character.  All  of  these  ex- 
penses, including  the  interest  upon  the  excess  of  funded 
debt  above  the  valuation  at  which  the  City  can  purchase 
and  the  $250,000  per  annum  necessary  for  sinking  fund 
redemption  are  necessarily  paid  out  of  the  Company's 
45  per  cent,  of  the  divisible  net  receipts. 

In  this  connection,  some  criticism  has  been  made  upon 
the  item  in  the  non-partnership  account  of  $120,573.81, 
corporate  expenses  and  adjustments.  This  item  is  a  part 
of  the  non-partnership  account  and  embraces  in  sub- 
stance $33,639.65,  representing  the  expenditures  to  trust 
companies  for  commissions,  paying  interest  on  bonds, 
trustee's  fees,  certifying  bonds,  expenses  for  engraving 
bonds,  traveling  expenses  and  similar  corporate  expenses, 
the  remainder,  viz :  $86,934.16,  is  the  interest  accruing  to 
the  joint  account  with  the  City  on  daily  cash  balances  as 
prescribed  by  the  ordinance.  It  is  included  in  the  income 
of  the  joint  account  and  charged  against  the  non-partner- 
ship account,  the  latter  account  receiving  credit  for  the 
actual  interest  earned  on  these  cash  balances  in  the  bank. 
The  method  of  calculating  this  interest  accruing  to  the 
joint  account  has  been  to  take  two  per  cent,  of  the  daily 
receipts  less  seventy  per  cent,  for  operating.  The  $86,- 
934.16  also  includes  interest  on  the  payments  into  the 
Damage  Eeserve  Fund,  as  prescribed  under  the  ordi- 
nance. 


14 

All  of  the  foregoing  interest  is  a  charge  against  the 
non-partnership,  but  is  offset  by  the  interest  earned  by 
the  non-partnership  on  the  deposits  in  bank,  which,  as 
shown  in  the  income  account  of  the  annual  report,  is 
$122,775.36. 

The  non-partnership  also  receives  through  its  45  per 
cent,  of  the  net  earnings  that  portion  of  the  interest 
earned  by  the  joint  account. 

CASH  AND  CASH  ITEMS  AS  SHOWN  ON  GENERAL  BALANCE  SHEET 
OP  REPOBT: 

Some  comment  has  heretofore  been  made  on  similar 
previous  reports  as  to  the  large  amount  of  cash  and  cash 
items  shown  on  hand.  In  the  balance  sheet  shown  in  the 
report  for  the  last  fiscal  year,  there  appears  as  "cash 
and  cash  items"  the  sum  of  $5,984,680.98.  The  itemi- 
zation  of  this  $5,984,680.98  is  as  follows: 

Merchants  Loan  &  Trust  Co.,  Trustee  of  Sinking  Fund $  109.32 

Merchants  Loan  &  Trust  Co.,  Special  Cash  Account 54,363.42 

Union  Trust  Company,  Special  Cash  Account 38,549.55 

Illinois  Trusts  &  Savings  Bank  Dividend  a/c 5,059.32 

Illinois  Trust  &  Savings  Bank,  Renewal  Reserve  Fund 982,291.43 

Harris  Trust  &   Savings  Bank,   Special  Construction  a/c 

derived  from  sale  of  bonds 1,000,000.00 

Cash— General  Fund 3,828,615.48 

Receiving  Clerks  (cash  collections  of  Jan.  31,  1913) 48,392.46 

Petty  cash  with  Secretary 1,000.00 

Deposit  with  General  Supervisor 800.00 

Deposit  in  Claim  Department 25,000.00 

City  of  Chicago,  Deposit 500.00 

$5,984,680.98 

The  inference  has  been  indulged  by  certain  critical  per- 
sons that  these  items  indicated  possession  by  the  com- 
pany of  large  amounts  of  funds  which  might  be  devoted 
to  dividends.  These  critics  forget  that  these  cash  items 
include  the  City's  share  of  undivided  net  receipts, 
amounts  attributable  to  reserve  funds,  accrued  sinking 
fund,  accrued  interest  and  accrued  taxes. 


15 

The  net  surplus  as  shown  by  the  balance  sheet  is,  as 
stated  therein,  $435,511.53. 

The  report  as  submitted  has  been  verified  by  the  ex- 
pert accountants  acting  for  the  City  and  the  Company, 
and  there  is  no  doubt  of  its  entire  accuracy,  and  with  the 
explanations  here  given  it  should  be  a  comparatively 
easy  matter  for  anyone  to  determine  that  the  surplus  as 
shown  for  the  last  current  year  is  correctly  given  in  said 
report,  and  it  should  also  be  easy  to  understand  why  the 
amount  of  such  surplus  is  only  a  little  over  one-third  of 
the  company's  share  of  the  divisible  net  receipts. 

REHABILITATION,  RE-EQUIPMENT  AND  EXTENSIONS: 

The  work  of  rehabilitation,  re-equipment  and  exten- 
sions to  January  31,  1913,  represents  the  following  con- 
struction : 

(1)  296.16  miles  single  track  rehabilitated. 

(2)  50.63  miles  of  single  track  for  new  extensions. 

(3)  K.  W.   Capacity  installed  in  power  stations  and  new  sub- 
stations, 52,000  K.  W. 

(4)  In   electric   transmission   there   have   been   constructed  795 
miles  of  single  duct;   620  miles  of  Lead  Covered  cable,  346 
miles  of  auxiliary  cable;  433  miles  of  overhead  feeder;  286 
street  miles  of  poles ;  479  miles  of  trolleys. 

(5)  Cars  constructed  by  Pullman  Co.  in  1909 600 

Steel  cars  50 

Cars  constructed  by  Pullman  Co.  in  1910 350 

Reconstructed  cars,  St.  Louis  type 328 

Cars  constructed  \n.  shops  of  Company  in  1912,  turtle 

back  type  215 

Chicago  Union  Traction  Company  cars,  rebuilt  as  Pay- 

as-you-enter  type  39 

Construction  cars 2 


Total 1584 

Car 
(6)  New  car  stations  constructed  at  capacity 

Lincoln  avenue  164 

25th  and  Leavitt  streets 142 

Kedzie  avenue 321 

Limits  Barns 93 

Lawndale  Barns 233 

48th  and  North  avenues 158 


Total 1111 


16 


Car 
(7)  Old  car  stations,  reconstructed:  capacity 

Armitage  avenue  105 

Noble  street , 78 

Division  street  100 

Elston  avenue  81 

Devon  avenue .  180 


Total 544 

(8)  Power  Houses  converted  into  Sub-stations: 
Milwaukee  avenue  Cable  Station 

Van  Buren  street  Cable  Station 
Edgewater  power  house  electric  station 

(9)  New  Sub-stations  constructed: 
#1  Van  Buren  street  sub-station 
#2  Milwaukee  avenue  sub-station 
#3  Lill  avenue  sub-station 

#4  Blue  Island  avenue  sub-station 
#5  Grand  avenue  sub-station 
#6  Illinois  street  sub-station 
#7  Evanston  avenue  sub-station 

Van  Buren  street,  Milwaukee  avenue  and  the  Evans- 
ton  avenue  sub-stations  have  been  located  in  the  old 
power  houses.  The  Lill  avenue  sub-station,  the  Blue  Is- 
land avenue  sub-station,  the  Grand  avenue  and  Illinois 
street  sub-stations  are  entirely  new  sub-stations. 

Added  to  the  capacity  of  shops,  268,700  square  feet  of 
buildings.  Added  to  shop  machinery,  415  machines  and 
motors  with  floating  tools. 

The  cost  of  the  rehabilitation,  re-equipment  and  ex- 
tensions to  January  31, 1913,  with  percentages  added  and 
as  determined  by  the  Board  of  Supervising  Engineers, 
has  aggregated  the  sum  of  $46,708,585.74,  distributed  as 
follows : 


17 


Amount  allowed  by  City  of  Chicago  as  purchase 
price  of  physical  assets  of  that  part  of  Chi- 
cago Consolidated  Traction  Company  property 
inside  the  limits  of  Chicago  to  be  paid  by  Chi- 
cago Railways  Company  and  charged  to  Capital 
Account,  as  provided  by  Ordinance  of  October  10, 
1910,  and  being  the  value  fixed  by  Bion  J.  Arnold 

and  George  Weston,  as  of  November  1,  1909 $3,930,684.51 

Amount  certified  by  the  Board  of  iSupervising  En- 
gineers, as  per  terms  of  Ordinance  of  October 
10,  1910,  as  value  of  additions  and  improvements 
added  to  physical  assets  aforesaid,  from  Novem- 
ber 1,  1909,  to  December  6,  1910,  date  of  accept- 
ance of  said  Ordinance  of  October  10,  1910 91,297.50 

Amount  expended  on  rehabilitation  work  and  ex- 
tensions : 

Track  Work   $19,348,791.80 

Electric  Lines 4,593,651 . 66 

Rolling  Stock   9,640,150.47 

Real  Estate  and  Buildings 4,154,398.93 

Power   House   and    Sub-station 

Equipment 1,225,699.27 

Stores  and  Supplies 974,844.77 

Tunnels  and  Bridges 2,749,066.83    42,686,603.73 


Total $46,708,585.74 

In  addition  to  the  expenditures  included  in  said  sum 
of  $46,708,585.74,  the  Company  has  been  permitted  by 
the  Board  of  Supervising  Engineers,  pursuant  to  the 
terms  of  the  ordinance,  to  withdraw  from  the  renewal 
fund  and  expend  in  the  way  of  renewals  up  to  February 
1,  1913  the  sum  of  $2,509,461.59.  In  this  connection  it 
must  be  remembered  that  the  renewal  fund  according 
to  the  terms  of  the  ordinance  did  not  commence  until 
after  the  expiration  of  the  three-year  immediate  re- 
habilitation period  which  terminated  January  29,  1911, 
and  the  expenditures  covered  by  said  $2,509,461.59  were 
all  made  between  February  1, 1911,  and  February  1, 1913. 
The  amounts  so  withdrawn  from  the  renewal  fund  were 
expended  and  distributed  as  follows : 


18 

1.  Money  used  by  the  Electric  Department  in  the 
redistribution    of    feeders,    work   in   old   power 

houses,  renewals  of  trolleys,  etc $       320,360.01 

2.  Amount  used  by  Building  Department  in  recon- 
struction of  car  stations,  buildings,  etc 143,675.98 

3.  Amount  used  by  the    car    shops    in  rebuilding 

cars,  changing  into  Pay-as-you-enter  type 635,240.11 

4.  Amount  used  by  the  Track  Department  in  re- 
newal, rehabilitation 911,416.43 

5.  Amount  used  by  the  Tunnel  Department 3,345 . 07 

6.  Miscellaneous     amounts,    including    principally 
amounts  paid  to  Board  of  Supervising  Engineers 
on  rehabilitation  work,  and  depreciation  account 

on  power   495,423.99 


Total $2,509,461.59 

Treating  the  last  fiscal  year  separately,  the  Company 
during  that  period  has  rehabilitated  21.32  miles  of  single 
track  and  made  extensions  amounting  to  18.01  miles  of 
single  track.  The  Company  now  owns  487.11  miles  of 
single  track,  distributed  as  follows: 

Miles. 

Tracks  of  the  Chicago  Union  Traction  .System 306.48 

Tracks  of  the  Chicago  Consolidated  Traction  Com- 
pany within  the  limits  of  Chicago,  purchased  by 
the  Company 124 

Suburban  street  railroad  tracks  contained  within  the 
limits  of  the  City  of  Chicago  purchased  by  the 
Company 6 

Extensions  since  June  30,  1906 50.63 

487.11 

For  the  last  fiscal  year  the  cost  of  rehabilitation,  re- 
equipment  and  extensions,  plus  percentages,  is  as  fol- 
lows: 

Departments  Expenditures 

plus  15% 

Electrical $   165,362.78 

Electrical  Equipment   Sub-station 13,732.30 

Miscellaneous  Power  House  Equipment 340.00 

Buildings 24,131.39 

Deferred  Bills,  Building 13,251 . 61 

Car  Shops,  Construction  of  Cars 1,115,677.19 

Track  Department 1,612,974.63 

Tunnels 417,788.47 

Miscellaneous  .  58,690.84 


$3,421,949.21 


19 

During  the  same  fiscal  year   the    expenditures    from 
funds  derived  from  the  Eenewal  Fund,  are  as  follows : 

Kenewals  Expended 

Departments  February  1,  1912, 

to  February  1, 1913 

Electrical $   58,893.51 

Electrical  Equipment,  Sub-stations 4,231.70 

Miscellaneous  Equipment,  Power  House 18,550.01 

Building 24,192.32 

Car  Shops 255,217.04 

Track 333,269.18 

Tunnels 3,345.07 

Miscellaneous 465,746.92 


$1,163,445.75 

There  have  been  rehabilitated  in  all  since  June  30, 1906, 
296.16  miles  of  single  track.  The  new  extensions  as 
aforesaid  made  since  that  date  aggregate  50.63  miles  of 
single  track.  Of  the  said  487.11  miles  there  still  remains 
not  rehabilitated  old  tracks  of  the  Chicago  Union  Trac- 
tion Company  System,  the  Chicago  Consolidated  Trac- 
tion system  within  the  limits  of  the  City  of  Chicago,  and 
the  tracks  of  the  Suburban  Railroad  Company  within  the 
same  limits,  140.32  miles  of  single  track. 

It  is  contemplated  during  the  present  fiscal  year  that 
the  Company  will  rehabilitate  43  miles  of  old  track  and 
will  make  extensions  of  8  to  12  miles  of  single  track.  The 
above  does  not  include  tracks  in  barns,  shops  and  yards, 
nor  special  work  at  crossings  and  upon  curves. 

In  explanation  of  the  item  of  6  miles  of  track  formerly 
belonging  to  the  Suburban  Railroad  Company,  it  should 
be  said  that  the  City  Council  of  the  City  of  Chicago  dur- 
ing the  last  fiscal  year  urged  upon  the  Company  the  acqui- 
sition of  these  tracks,  being  tracks  in  52nd  avenue  from 
12th  street  north  to  a  point  near  Lake  street,  and  in  Har- 
rison street  from  South  48th  avenue  to  South  60th  ave- 
nue, and  pursuant  to  an  ordinance  of  the  City  Council 
of  the  City  of  Chicago  passed  December  16,  1912,  and  ac- 


20 

cepted  January  3,  1913,  directing  such  acquisition,  pro- 
viding for  the  immediate  rehabilitation  of  Harrison  street 
between  the  avenues  aforesaid,  the  Company  acquired 
from  the  receiver  of  the  Suburban  Railroad  Company  the 
6  miles  of  single  track  above  mentioned,  paying  therefor 
the  price  determined  by  the  Board  of  Supervising  En- 
gineers as  the  scrap  value  of  the  track  and  electrical 
equipment,  amounting  to  $22,554.43. 

During  the  same  period  the  Company  added  to  its  pas- 
senger car  equipment  204  closed  double  truck  cars  and 
also  completely  rebuilt  52  double  truck  cars,  equipping 
them  with  new  trucks,  new  motors  and  all  equipment ;  and 
also  added  3,000  K.  W.  capacity  to  its  substations. 

During  the  same  year  the  work  on  the  Washington 
street  and  the  LaSalle  street  tunnels  was  finally  com- 
pleted and  both  of  said  tunnels  are  now  in  operation. 

DECLARATION   OF  DIVIDENDS. 

Some  criticism  has  been  made  upon  the  fact  that  the 
amount  declared  as  dividends  by  the  Company  has  not 
been  received  in  full  by  the  certificate  holders  entitled  to 
dividends. 

The  modified  plan  of  reorganization  and  readjustment 
of  October  15,  1907,  provided,  among  other  things,  that 
the  stockholders  of  the  Chicago  Railways  Company 
should  make  the  capital  stock  of  the  Company  ($100,000) 
the  subject  of  an  issue  of  participation  certificates  repre- 
senting in  the  aggregate  265,100  parts,  divided  into  Series 
1  of  30,800  parts,  Series  2  of  124,300  parts,  Series  3  of 
60,000  parts  and  Series  4  of  50,000  parts.  Pursuant  to 
this  requirement  of  such  plan,  an  agreement  dated  as  of 
the  1st  day  of  August,  1907,  was  entered  into  between 
Adolphua  C.  Bartlett,  Chauncey  Keep,  Charles  H.  Hul- 


21 

burd,  Albert  A.  Sprague  and  Charles  G.  Dawes,  holders 
of  certificates  endorsed  in  blank  for  transfer,  for  and 
representing  all  the  shares  of  the  capital  stock  of  Chicago 
Railways  Company,  of  the  first  part,  the  same  parties  as 
depositaries,  of  the  second  part,  Central  Trust  Company 
of  New  York  as  custodian,  of  the  third  part,  and  the  hold- 
ers from  time  to  time  of  participation  certificates  issued 
and  to  be  issued  under  said  agreement,  of  the  fourth 
part.  Pursuant  to  this  agreement,  the  participation  cer- 
tificates of  the  different  series  were  issued,  and  each 
certificate  is  subject  to  all  the  terms  and  conditions  of 
said  agreement.  By  section  1  of  article  2  of  this  agree- 
ment it  is  provided  that  all  dividends  paid  and  income 
realized  on  or  from  the  deposited  securities  (stock  of  the 
Company),  unless  paid  directly  on  the  order  of  the 
depositaries,  shall  when  and  as  the  same  shall  be  received 
by  them,  or  for  their  account,  be  deposited  as  provided 
in  the  agreement,  and  after  deducting  therefrom  the  com- 
pensation and  expenses  of  the  depositaries  and  the  cus- 
todian as  authorized  in  the  agreement,  the  same  shall  be 
distributed  pro  rata  to  and  among  the  holders  of  par- 
ticipation certificates  in  the  order  provided  in  said  agree- 
ment, payment  being  first  made  of  Series  1  and  then  to 
the  other  series  in  succession  to  the  extent  that  the  amount 
paid  shall  be  sufficient  for  those  purposes. 

The  agreement  further  provided  for  the  appointment 
by  the  depositaries  of  registrars  for  the  participation 
certificate  and  transfer  agents  as  well  as  the  appointment 
of  a  trust  company  to  hold  the  stock,  giving  proxies  there- 
on to  the  depositaries.  Pursuant  to  these  provisions  the 
depositaries  appointed  the  Harris  Trust  and  Savings 
Bank,  the  Illinois  Trust  &  Savings  Bank,  both  of  Chi- 
cago, and  the  Central  Trust  Company  of  New  York,  as 


22 

registrars  and  transfer  agents,  and  designated  the  Chi- 
cago Title  &  Trust  Company  as  Trustee,  and  compensa- 
tion to  all  of  these  trust  companies  and  banks  is,  of 
course,  necessary  to  be  paid  or  otherwise  there  would  be 
no  machinery  for  the  transfer  of  certificates. 

The  depositaries  therefore,  upon  the  receipt  of  the 
dividends  from  the  Company,  deducted  (1)  their  own 
compensation,  (2)  the  fees  of  the  above  named  registrars 
and  transfer  agents,  and  (3)  the  fee  of  the  Chicago  Title 
&  Trust  Company  as  Trustee  of  the  stock,  and  the  re- 
mainder was  made  the  subject  of  distribution  to  the  par- 
ticipation certificate  holders  according  to  the  terms  of 
the  agreement. 

PROPERTY  OP  THE  CHICAGO  CONSOLIDATED  TRACTION  COMPANY 
WITHIN  THE  LIMITS  OP  THE  CITY  OF  CHICAGO  ACQUIRED  BY 
THE  COMPANY  PURSUANT  TO  THE  ORDINANCE  OP  OCTOBER  10, 
1910. 

The  acquisition  of  this  property  by  the  Company  has 
been  to  some  extent  criticised  on  account  of  the  price 
paid  therefor,  although  as  a  matter  of  fact  the  Company 
acquired  the  same  on  the  best  terms  obtainable. 

The  necessity  which  compelled  the  acquisition  by  the 
Company  of  the  property  of  the  Chicago  Consolidated 
Traction  Company  within  the  limits  of  the  City  of  Chi- 
cago cannot  be  stated  more  fully  or  accurately  by  me 
than  I  have  heretofore  done  in  my  circular  letter  to  the 
certificate  holders,  dated  July  22,  1912,  and  at  the  risk  of 
lengthening  this  report  beyond  my  original  intention,  I 
quote  from  that  report  as  follows: 

"The  obligations  in  relation  to  the  Chicago  Con- 
solidated Traction  Company  imposed  upon  the  Chi- 
cago Railways  Company  by  Section  24  of  its  ordi- 


23 

nance  were  far  from  satisfactory  and  were  only  ac- 
cepted because,  despite  most  earnest  effort,  less 
stringent  provisions  were  unattainable. 

The  City  Council  was  immovable  in  its  require- 
ments (1)  that  the  system  of  street  railways  in  Chi- 
cago controlled  by  the  Chicago  Consolidated  Trac- 
tion Company  should  be  practically,  so  far  as  the 
traveling  public  was  concerned,  treated  as  a  part  of 
the  street  railway  system  of  the  Chicago  Eailways 
Company;  (2)  that  for  a  single  five-cent  fare  a  pas- 
senger could,  through  transfer,  obtain  a  continuous 
passage  in  one  general  direction  over  the  lines  of 
railway  of  the  systems  of  both  the  Chicago  Railways 
Company  and  the  Chicago  Consolidated  Traction 
Company  in  Chicago;  (3)  that,  at  its  own  expense, 
and  not  out  of  its  receipts  from  street  railway  oper- 
ation, the  Chicago  Eailways  Company  should  secure 
the  right  to  operate  its  cars  over  such  parts  of  the 
system  of  the  Chicago  Consolidated  Traction  Com- 
pany as  should  be  embraced  in  the  through  routes 
specified  in  the  ordinance,  or  that  might  thereafter 
be  specified  according  to  the  ordinance,  and  (4)  that 
the  old  operating  arrangements  between  the  Union 
Traction  System  and  the  Chicago  Consolidated  Trac- 
tion System  should  be  continued,  provided,  first, 
that  they  should  be  terminable  upon  six  months'  no- 
tice by  the  City,  and,  second,  that  in  case  of  purchase 
by  the  City,  or  its  licensee,  of  the  property  of  the 
Chicago  Railways  Company,  as.  was  permitted  by  the 
ordinance,  such  property  should  be  transferred  free 
from  such  operating  arrangements. 

This  Section  24,  as  counsel  for  the  Company 
argued  to  the  local  Transportation  Committee  when 
the  section  was  under  consideration,  menaced  the 
very  life  of  the  Chicago  Railways  Company,  because 
with  the  Chicago  Consolidated  Traction  System  in 
the  hands  of  hostile  interests,  the  Chicago  Railways 
Company  could  not  perform  the  conditions  of  its 
ordinance  and  would  then  face  destruction  in  the  for- 
feiture of  its  rights  of  street  occupancy.  The  City 
Council,  however,  was  deaf  to  all  argument,  and  Sec- 
tion 24  stood  as  written.  A  very  short  period  suf- 


24 

ficed  to  demonstrate  that  the  apprehensions  of  the 
Chicago  Railways  Company  were  only  too  well 
founded. 

The  property  of  the  Chicago  Consolidated  Trac- 
tion Company  was  subject  to  a  bonded  indebtedness 
secured  by  mortgage  on  its  property  of  $6,750,000 
par  value  and  to  a  bonded  indebtedness  of  its  grantor 
and  lessor  companies  of  $5,883,000  par  value.  In 
December,  1910,  when  the  property  of  the  Chicago 
Consolidated  Traction  Company  in  Chicago  was  ac- 
quired, as  hereinafter  stated,  the  above  indebtedness 
with  accrued  and  unpaid  interest  aggregated  over 
$14,500,000. 

In  the  Fall  of  1908  the  holders  of  $1,284,000  par 
value  of  the  bonds  of  the  Chicago  Consolidated 
Traction  Company  brought  suits  in  the  Superior 
Court  of  Cook  County,  Illinois,  against  the  Chicago 
Eailways  Company  to  recover  from  it  the  principal 
and  accrued  interest  due  upon  these  bonds,  upon  the 
theory  that  it  was  a  consolidation  of  or  a  successor 
to  the  Chicago  Union  Traction  Company  (which  had 
guaranteed  the  bonds  of  the  Chicago  Consolidated 
Traction  Company)  and  its  lessor  companies  and 
hence  was  liable  for  the  debts  of  those  companies. 
Such  proceedings  were  had  in  these  suits  that  on 
May  23,  1910,  judgments  aggregating  $1,440,144.78 
were  entered  by  the  court  against  the  Chicago  Eail- 
ways Company. 

As  soon  as  the  Chicago  Consolidated  Traction 
Company  was  deprived  of  the  financial  support  which 
it  had  theretofore  received,  first  from  the  Chicago 
Union  Traction  Company  and  afterwards  from  its 
receivers,  it  was  unable  to  pay  its  operating  ex- 
penses and  fixed  charges,  and  in  consequence,  on 
June  1,  1908,  made  default  in  the  payment  of  the  in- 
terest then  due  upon  its  $6,750,000  par  value  of  bonds 
aforesaid.  The  Trustee  in  the  mortgage  securing 
said  bonds  soon  afterwards  commenced  a  foreclos- 
ure suit  in  the  Federal  Court  at  Chicago,  and  such 
proceedings  were  had  therein  that  receivers  of  the 
property  of  said  Company  were  appointed  and  en- 
tered into  possession  of  its  property.  Subsequently 


25 

the  Trustees  in  the  mortgages  of  the  grantor  and 
lessor  companies  of  the  Chicago  Consolidated  Trac- 
tion Company,  securing  bonds  aggregating  par  value 
as  aforesaid  $5,883,000,  commenced  separate  fore- 
closure suits  and  the  causes  were  consolidated  with 
the  above  mentioned  foreclosure  cause  and  the  re- 
ceivership extended  to  each  of  these  causes,  and  such 
was  the  condition  of  affairs  at  the  time  of  the  recov- 
ery of  the  judgments  above  mentioned. 

The  condition  of  the  Chicago  Eailways  Company 
when  the  judgments  were  recovered  was  nothing  less 
than  appalling.  It  had  no  working  capital  and  it  had 
no  means  of  progressing  with  the  work  of  immediate 
rehabilitation  except  through  the  sale  of  its  first 
mortgage  bonds,  which  could  only  issue  upon  certifi- 
cates of  the  Board  of  Supervising  Engineers  certify- 
ing work  done  or  materials  furnished.  The  work  of 
immediate  rehabilitation  was  not  then  completed  and 
an  additional  expenditure  to  that  end  of  several  mil- 
lions of  dollars  was  absolutely  necessary.  While  its 
counsel  were  of  the  opinion  that  the  decision  of  the 
Superior  Court  was  wrong,  yet  it  was  impossible  to 
stay  the  collection  of  the  judgments  unless  it  could 
appeal  the  causes  and  give  an  appeal  bond  with  re- 
sponsible surety,  conditioned  to  pay  the  judgments, 
if  affirmed  by  the  Supreme  Court. 

Under  the  statute  of  Illinois  the  failure  on  the  part 
of  the  Company,  for  ten  days  after  execution  sued 
out,  to  pay  these  judgments,  entitled  the  holder  of 
said  judgments  to  dissolve  the  corporation  and  to 
have  a  receiver  appointed  therefor.  This  was  not 
the  only  difficulty.  If  the  judgment  of  the  Superior 
Court  was  right  and  if  the  Chicago  Railways  Com- 
pany was  liable  upon  the  bonds  of  the  Chicago  Con- 
solidated Traction  Company,  it  was,  for  the  same 
reason,  liable  on  account  of  the  bonds  of  the  grantor 
and  lessor  companies  of  the  Chicago  Consolidated 
Traction  Company,  because  substantially  all  of  these 
bonds  had  been  guaranteed  by  the  North  and  West 
Chicago  Street  Railroad  Companies,  and  if  the  Chi- 
cago Eailways  Company  was  a  consolidation  of  or 
a  successor  to  the  Chicago  Union  Traction  Company, 


26 

it  was  also  a  consolidation  of  and  a  successor  to  the 
North  and  West  Chicago  Street  Railroad  Companies. 
In  other  words,  if  the  decision  of  the  Superior  Court 
was  right,  the  Chicago  Railways  Company  was  li- 
able to  the  holders  of  bonds  aggregating,  with  inter- 
est, more  than  $14,500,000,  and  to  attempt  to  fur- 
nish bonds  with  responsible  surety,  against  such  an 
immense  amount,  or  any  substantial  part  of  it,  was 
a  financial  impossibility. 

On  the  same  day  that  these  judgments  were  ob- 
tained, a  contract  creditor  of  the  Chicago  Railways 
Company  commenced  suit  against  the  Company  in 
the  Federal  Court  at  Chicago  and  obtained  the  ap- 
pointment of  receivers  therefor. 

At  that  time  the  Chicago  Railways  Company  had 
sold  $19,000,000  of  its  first  mortgage  bonds  and  had 
employed  the  proceeds  in  the  work  of  immediate  re- 
habilitation, and  it  had,  in  addition  thereto,  sold 
against  bonds  thereafter  to  be  issued,  interim  certifi- 
cates of  the  par  value  of  $6,000,000,  and  of  the  pro- 
ceeds of  said  interim  certificates  it  had  expended, 
in  the  work  of  immediate  rehabilitation,  all  but  about 
$2,200,000.  There  were  a  great  many  unpaid  bills 
due  for  work  done  in  the  immediate  rehabilitation 
approximately  sufficient  to  exhaust  this  balance  of 
about  $2,200,000.  To  finish  the  immediate  rehabili- 
tation, at  least  $5,000,000,  in  addition  to  the  bal- 
ance of  money  on  hand,  was  necessary,  but  the  Trus- 
tee in  the  mortgage  securing  the  rehabilitation  bonds 
declined  to  further  certify  bonds  on  the  ground  that 
the  above  mentioned  judgments  were  probably  a  lien 
upon  the  property  ahead  of  bonds  thereafter  to  be 
issued.  Bankers,  to  whom  the  Company  had  sold  the 
$19,000,000  of  bonds  and  the  $6,000,000  of  interim 
certificates,  absolutely  declined  to  buy  any  more 
bonds  until  (1)  the  lien  of  the  judgments  upon  the 
property  of  the  Company  should  be  released  and  the 
judgments  paid  or  compromised  so  as  to  give  no  fur- 
ther annoyance  to  the  Company;  (2)  the  discharge 
of  the  receivership,  so  as  to  restore  the  credit  of  the 
Company;  (3)  the  purchase  or  compromise  or  set- 
tlement of  the  bonded  indebtedness  of  the  Chicago 


27 

Consolidated  Traction  Company  and  its  lessor  and 
grantor  companies  at  least  to  a  point  where  there 
would  not  be  outstanding  any  of  such  bonded  in- 
debtedness in  excess  of  approximately  $500,000,  and 
(4)  the  acquisition  of  the  system  of  street  railways 
controlled  by  the  Chicago  Consolidated  Traction 
Company,  so  far  as  located  in  Chicago,  in  order  that 
the  further  menace  of  Section  24  of  the  ordinance 
should  be  forever  removed. 

It  was  absolutely  necessary  to  raise  the  money 
with  which  to  finish  immediate  rehabilitation  within 
the  time  limit,  to-wit,  January  29,  1911,  as  other- 
wise the  ordinance  of  the  Company  would  be  lost 
and  stockholders  and  bondholders  alike  would  be  in- 
volved in  one  common  ruin.  The  money  for  this 
immediate  rehabilitation  could  only  be  raised  in  one 
of  two  ways;  (1)  By  foreclosure  of  the  mortgages 
upon  the  property  of  the  Company,  the  issuing  of  re- 
ceivers' certificates  to  the  amount  necessary  to  finish 
immediate  rehabilitation,  and  a  reorganization  of 
the  Company,  which  even  then  would  not  avoid  the 
menace  of  Section  24  and  which  would  probably  mean 
the  wiping  out  of  the  participation  certificates,  or 
(2)  by  complying  with  the  requirements  of  the  bank- 
ers as  above  outlined,  necessitating  the  great  addi- 
tional burdens  which  it  involved. 

The  management  deemed  it  to  be  to  the  best  inter- 
ests of  all  concerned  to  accept  the  second  alterna- 
tive, and  negotiations  were  undertaken  to  that  end. 

The  space  is  lacking  here  to  give  all  the  details 
of  these  negotiations,  but  a  brief  summary  of  them 
here  follows: 

1.  The  City  Council  on  October  10, 1910,  passed  an 
ordinance  authorizing  and  requiring  the  acquisition 
by  the  Chicago  Eailways  Company  of  that  part  of  the 
system  of  street  railways  controlled  by  the  Chicago 
Consolidated  Traction  Company,  located  in  the  City 
of  Chicago,  allowing  a  valuation    of    the    physical 
property  of  the  part  so  authorized  to  be  acquired  of 
the  sum  of  $3,930,684.15,  but  excluding  from  the  valu- 
ation all  then  existing  ordinance  rights  or  claims. 

2.  The  title  to  the  property  of  the  Chicago  Con- 


28 

solidated  Traction  System  in  the  City  of  Chicago, 
free  and  clear  of  all  claims  and  liens,  was  secured  by 
the  Chicago  Railways  Company,  it  paying  therefor 
$3,930,684.15  par  value  of  its  first  mortgage  re- 
habilitation bonds  and  $270,000  par  value  of  its  con- 
solidated mortgage  bonds  Series  B;  and  issuing 
and  delivering  its  adjustment  income  four  per  cent, 
bonds  of  the  par  value  of  $2,500,000  and  its 
purchase  money  mortgage  bonds  of  the  par 
value  of  $4,073,000,  the  latter  bearing  inter- 
est until  January  1,  1916,  at  four  per  cent, 
and  thereafter  at  five  per  cent.  The  purchase  money 
mortgage  bonds  were  secured  by  a  mortgage  or  trust 
deed  of  the  Chicago  Railways  Company  which,  sub- 
ject to  the  first  mortgage  bonds  of  the  Chicago  Rail- 
ways Company,  was  a  first  lien  upon  the  property  of 
the  Chicago  Consolidated  Traction  System  so  pur- 
chased, and  subject  to  the  first  mortgage  bonds  and 
the  consolidated  mortgage  bonds  of  the  Chicago  Rail- 
ways Company,  was  a  lien  upon  the  remainder  of  the 
property  of  the  Chicago  Railways  Company.  The 
adjustment  income  bonds,  the  interest  on  which  was 
payable  only  if  earned,  and  was  non-cumulative,  were 
secured  by  a  mortgage  of  the  Chicago  Railways  Com. 
pany  which  was  a  lien  upon  the  property  so  acquired 
subject  to  the  first  mortgage  of  the  Chicago  Rail- 
ways Company  and  subject  to  the  aforesaid  purchase 
money  mortgage  bonds  and  a  lien  upon  the  other 
property  of  the  Chicago  Railways  Company,  subject 
to  its  first  mortgage  bonds  and  its  consolidated  mort- 
gage bonds,  and  the  purchase  money  bonds. 

3.  Out  of  the  $3,930,684.15  rehabilitation  bonds 
and  the  proceeds  of  a  part  thereof  and  out  of  said 
$270,000  Series  B  bonds  there  were  paid  certain  re- 
ceivers' certificates  upon  the  system  of  the  Chicago 
Consolidated  Traction  Company  and  certain  costs 
and  court  expenses,  and  by  means  of  funds  from  the 
same  source  the  judgments  in  the  Superior  Court 
were  'compromised  and  all  of  the  $6,750,000  of  the 
mortgage  bonds  of  the  Chicago  Consolidated  Trac- 
tion Company  were  acquired,  excepting  $54,142.50 
par  value  of  said  bonds,  for  which  adjustment  income 


29 

bonds  were  taken,  and  excepting  $257,042.50  of  said 
bonds  still  outstanding,  of  which  (1)  $149,000  was 
and  is  in  suit  in  the  Municipal  Court  of  Chicago,  (2) 
$20,000  belong  to  the  estate  of  Charles  T.  Yerkes,  de- 
ceased, (3)  $30,000  are  held  by  the  Inter  Ocean  Pub- 
lishing Company  as  collateral  to  an  indebtedness  due 
from  the  estate  of  Charles  T.  Yerkes,  and  (4)  $58,- 
042.50  are  held  by  divers  parties. 

So  far  as  these  bonds  were  acquired  for  cash  they 
were  acquired  at  the  rate  of  $300  flat  per  bond,  and 
the  Chicago  Eailways  Company  now  holds  all  of  the 
property  so  acquired  free  from  any  claim  excepting 
the  $257,042.50  which  is  contested,  and  save  that  cer- 
tain parties  interested  in  the  estate  of  Charles  T. 
Yerkes  are  claiming  that  the  purchase  from  the  es- 
tate of  a  large  amount  of  bonds  at  $300  flat  per  bond 
was  not  a  valid  sale.  This  contention  counsel  for  the 
Company  deem  to  be  of  no  importance  and  negligible, 
as  there  can  be  no  question  of  the  fairness  or  of  the 
validity  of  the  purchase. 

The  management  obtained  the  very  best  terms 
within  its  power  and  met  all  the  requirements  of  the 
bankers,  including  the  discharge  of  receivers,  which 
occurred  December  27,  1910,  and  they  invite  the 
closest  investigation  of  their  conduct  in  this  regard, 
satisfied  that  they  saved  the  property  of  the  Chicago 
Eailways  Company  on  the  best  terms  obtainable,  and 
that  not  an  unnecessary  dollar  was  expended  nor  an 
unnecessary  security  issued  for  that  purpose." 

LITIGATION  IN  WHICH  THE  COMPANY  IS  INTEKESTED. 

The  case  of  Govin  et  al.  v.  Chicago  Railways  Company 
in  the  Municipal  Court  of  Chicago  (in  which  it  is  sought 
to  hold  the  Eailways  Company  liable  upon  the  guaranty 
of  the  Chicago  Union  Traction  Company  of  149  bonds 
of  Chicago  Consolidated  Traction  Company,  the  amount 
involved  being  $149,000,  with  interest  at  4|  per  cent,  from 
December  1,  1907),  proceeds  upon  the  theory  that  the 
Company  is  the  successor  to  or  a  consolidation  of  prede- 


30 

cessor  companies,  including  the  Chicago  Union  Trac- 
tion Company,  and  therefore  liable  for  all  of  their  debts. 
No  action  in  this  case  has  been  taken  during  the  year  cov- 
ered by  the  report  in  question.  The  case  was  heard  in 
the  fall  of  1911  before  Judge  Harry  Olson  and  taken  un- 
der advisement  in  December  of  that  year,  but  up  to  the 
present  writing  the  court  has  handed  down  no  decision. 

In  the  case  of  Adelaide  Yerkes  et  al.  v.  Chicago  Rail- 
ivays  Company  et  al.,  in  which  the  purchase  by  Andrew 
Cooke  of  $4,464,000  4%%  30-year  mortgage  bonds  of  Chi- 
cago Consolidated  Traction  Company  is  called  in  ques- 
tion and  in  which  an  effort  is  being  made  to  hold  the 
Company  liable  for  the  amount  of  said  bonds,  less  $300 
per  bond  flat  paid  therefor  by  said  Andrew  Cooke,  no  ac- 
tion has  been  taken  during  the  year  covered  by  the  report 
in  question.  The  case  is  still  pending  in  the  Circuit 
Court  of  Cook  County  undetermined. 

The  three  mandamus  cases,  brought  in  the  interest  of 
the  respective  towns  of  Oak  Park,  Maywood  and  Elver 
Forest,  in  which  suits  it  is  sought  to  compel  the  Company 
to  exchange  transfers  with  the  County  Traction  Company, 
are  still  pending  in  the  Superior  Court  of  Cook  County. 
All  of  these  cases  were  recently  heard  before  the  Hon- 
orable Charles  M.  Foell  and  were  taken  under  advise- 
ment by  the  court  and  no  decision  has  yet  been  handed 
down. 

In  the  case  of  the  Securities  Company  against  Chicago 
Railways  Company  and  others,  based  upon  $20,000  of  the 
mortgage  bonds  of  Chicago  Consolidated  Traction  Com- 
pany, in  which  it  is  sought  to  hold  the  Company  liable 
upon  the  guaranty  of  the  Chicago  Union  Traction  Com- 
pany of  said  bonds,  and  also  to  hold  the  directors  of  the 
Eailways  Company  liable  on  the  alleged  ground  that  they 


31 

permitted  the  indebtedness  of  the  Company  to  exceed  the 
amount  of  its  capital  stock,  no  action  has  been  taken  dur- 
ing the  past  fiscal  year  and  the  case  is  still  pending  in  the 
Circuit  Court  of  Cook  County  undetermined. 

The  case  of  Mandel  and  others  against  the  Company, 
in  the  Superior  Court,  in  which  it  was  sought,  among 
other  things,  to  set  aside  or  prevent  the  acquisition  of  the 
property  of  the  Chicago  Consolidated  Traction  Company 
within  the  limits  of  the  City  of  Chicago,  has  been  volun- 
tarily dismissed  by  the  complainants.  The  Committee  in 
charge  of  this  litigation  in  a  communication  under  date 
of  February  25,  1913,  to  the  holders  of  participation  cer- 
tificates Series  1,  stated  that  at  the  time  of  the  commence- 
ment of  the  aforesaid  suit  they  believed  that  the  rights 
of  the  certificate  holders  were  in  serious  danger  and  that 
therefore  the  suit  was  instituted  to  protect  their  rights, 
but  that  after  several  conferences  and  mature  delibera- 
tion they  were  now  ready  to  recommend  that  the  pending 
litigation  be  dismissed.  This  recommendation  was  fol- 
lowed and  the  suit  was  dismissed. 

The  management  apprehend  no  serious  danger  to  the 
Company  in  any  of  the  above-mentioned  pending  liti- 
gations. 

Eespectfully  submitted. 

HENRY  A.  BLAIR, 

CJiairman  of  the  Board  of  Directors, 
Chicago  Railways  Company. 


